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Questions and Answers
Which factor is NOT a source of long-term economic growth?
How is potential GDP represented in the aggregate supply framework?
An increase in the quality of which of the following resources would likely cause a rightward shift in the potential GDP curve?
Which situation would lead to a decrease in aggregate supply?
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What is expected if there is a positive change in any determinant of economic growth?
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What is the relationship between aggregate supply and potential GDP?
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Which factor is most likely to lead to inflationary booms?
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Which of the following factors does NOT negatively impact aggregate supply?
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What is a primary cause of inflation according to Keynesian economics?
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Which of the following is a characteristic of the Neoclassical view on the economy?
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In the context of aggregate supply, what would cause a leftward shift of the aggregate supply curve?
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What does the Modern View suggest about the economy during a recession?
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Which of the following is a determinant of economic growth?
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What happens to real GDP and price when aggregate demand decreases?
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According to Neoclassical theory, how do prices and wages react to a surplus in the market?
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Which of the following describes a decrease in aggregate supply?
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What is the equilibrium price and GDP based on the provided data?
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At a price of 95, what is the condition of the market regarding supply and demand?
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Which factor does NOT affect aggregate demand?
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Which determinant is associated with changes in net exports?
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What occurs when there is a shift in the aggregate demand curve?
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Which of the following is a determinant of economic growth?
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How do changes in interest rates affect aggregate demand?
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In the context of aggregate supply, an increase in resource prices typically leads to:
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Study Notes
Potential GDP
- The total output an economy can produce when all resources are fully utilized.
- It is represented by a vertical long-run aggregate supply (LRAS) curve.
- Potential GDP is not dependent on the price level.
Sources of Economic Growth
- The quantity and quality of labor resources (human capital).
- The amount of physical capital available.
- The rate of technological change.
- The amount and quality of natural resources.
Economic Growth and Potential GDP
- Changes in the determinants of economic growth cause the potential GDP curve to shift.
- A rightward shift represents economic growth.
Aggregate Demand (AD)
- The total quantity of goods and services demanded at different price levels.
- Determinants of AD:
- Consumer spending (influenced by wealth, durables, confidence).
- Investment spending (affected by interest rates, costs, capacity, business expectations, regulations).
- Net exports (determined by exchange rates, foreign income, competitive goods, foreign tastes).
- Government spending, tax rates, and the money supply.
Shifts in the AD Curve
- Changes in AD determinants cause the curve to shift.
- At any given price level, buyers will demand more or less goods and services.
Aggregate Supply (AS)
- The total quantity of goods and services supplied at different price levels.
- Determinants of AS:
- Input prices (wages, materials, energy).
- Technology and productivity.
- Government regulations and taxes.
Shifts in the AS Curve
- Changes in AS determinants cause the curve to shift.
- At any given price level, producers will supply more or less goods and services.
Macroeconomic Equilibrium
- The point where AD and AS intersect, determining the equilibrium price level and real GDP.
- This represents the balance between the amount of goods and services produced and consumed.
Causes of Inflation and Recessions
- Inflation can be caused by an increase in AD (demand-pull) or a decrease in AS (cost-push).
- Recessions might occur due to a decrease in AD or a decrease in AS.
Neoclassical Economics
- Assumes a competitive and efficient market.
- Believes prices and wages adjust quickly to market imbalances.
- Argues that the economy naturally returns to full employment.
Keynesian Economics
- Suggests limited market competition due to corporate and union power.
- Emphasizes price and wage stickiness, meaning they adjust slowly.
- Supports government intervention to address macroeconomic issues.
The Modern View of Aggregate Supply
- Acknowledges the validity of both Neoclassical and Keynesian views, depending on economic conditions.
- In recessions, the economy exhibits Keynesian characteristics, responding significantly to changes in AD.
- Near potential GDP, the economy behaves more Neoclassically.
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Description
This quiz explores the concepts of potential GDP and economic growth. It examines the factors that influence economic growth, including labor resources, physical capital, technological change, and aggregate demand. Test your understanding of how these elements interact to affect overall economic performance.
